By Ahmed Ishtiaq
Sarepta Therapeutics (NASDAQ:SRPT) is in the process of developing RNA-based therapies to save and improve lives of people. Sarepta is also working on developing drugs for infectious diseases. The company has a diverse pipeline of drugs and it focuses on developing treatments for life threatening genetic disorders. At the moment, the firm is working on developing a treatment for Duchenne muscular dystrophy (DMD). It is a rare disorder that can cause severe muscle loss and early death. This disease in mostly found in young boys, approximately one boy in every 3500 boys around the world suffers from this disease. Currently, there is no cure available for the disorder.
Development stage pharmaceutical companies need a substantial amount of cash to carry research and drug trials. The company has announced the public offering of about 4.95 million shares to raise $125. Sarepta lost a source of cash when the defense department decided to end the contract for developing treatment to fight the Ebola Virus.
The company will be selling 4.95 million shares in the public offering to raise $125 million. The shares are priced at $25.25 per share, close to the current market price. Furthermore, the company has also granted a 30-day option to the underwriters to buy additional shares. If the underwriters opt to exercise the option, the company will sell an additional 742,574 shares for the same terms and conditions. The purpose of the option is to cover any over-allotments. Sarepta will get an aggregate amount of $118.2 million from the deal after the commissions and underwriter discounts. However, the $118.2 million excludes the underwriter's over-allotment option.
The deal should be closed by December 18, and it will go a long way in helping the company in its development of the drug. In a telephone interview with Adam Feuerstein of "The Street", CEO of Sarepta, Chris Garabedian, said that the company initially wanted to raise $75 million. However, strong demand from institutional investors forced Sarepta to increase the offering to $125 million. A lot of institutional investors would not have achieved their desired allocation on the initial levels. Strong demand from institutional investors shows the confidence in the prospects of the company.
How the Money will be used?
Sarepta declared that the money will be used for general corporate purposes, including the development of Eteplirsen. Sarepta had $37.9 million in cash at the end of the third quarter, almost $2 million less than the same quarter last year. In the above mentioned interview, Chris Garabedian reiterated that the company will request a meeting with the FDA before the end of the year. As a result, a meeting in the first quarter of the next year is expected. He further stated that the company expects a final word from the FDA in March-April about the accelerated approval of Eteplirsen.
The stock issue is timely for the company as it will put it in a nice position to develop the drug or start the phase III trials in the first quarter of 2013. If the company receives permission to present the drug for early approval, these cash reserves will be extremely helpful in the development of the drug. It is highly encouraging for the company that it can raise cash with no or little effort. It shows that the market has a great deal of confidence in the success of the product. Furthermore, Chris Garabedian said that there is a lot of interest in the program, but the company is not interested in a partnership at the moment. However, if the company gets into a partnership, it will be an ex-U.S. partnership that will encompass the company's whole Exon-skipping drug program.
Sarepta Therapeutics has a blockbuster drug on its hands, which makes it an attractive investment for a majority of investors. The company now has almost 50% institutional ownership after the recent public offering. The ability of the company to raise funds has put it in a strong position. At the moment, Sarepta has an incredibly strong balance sheet, which gives its management considerable room for experiment. The company will not be forced into any partnership due to the financial issues. The only way any partner will get into Sarepta is through extremely attractive economic terms.
If the company is able to convince FDA of the early Eteplirsen approval, then the company can go years without competition. GlaxoSmithKline (NYSE:GSK) can be its only competitor; however, it will be a long time before GSK introduces its drug in the market. Chris Garabedian will be speaking at the JPMorgan conference on January 9, where he will probably give guidance about 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Ahmed Ishtiaq, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.